Tuesday, August 10, 2010

Magazine Publisher Boycott of Wholesaler Not Plausible

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

A defunct magazine wholesaler failed to plausibly allege a conspiracy to drive it out of business among national magazine publishers, distributors, and wholesalers, the federal district court in New York City has ruled. The wholesaler’s claims were dismissed with prejudice.

The wholesaler—the second largest magazine wholesaler in the United States before it was forced into liquidation bankruptcy proceedings in 2009—alleged that it was the victim of a boycott that came in response to its imposition of a surcharge on all single-copy magazines shipped.

According to the wholesaler, the surcharge was intended to create an incentive to eliminate the waste and inefficiency caused by the shipping of excessive copies of magazines. The wholesaler contended that the publishers responded to the surcharge by cutting off 80% of its magazine supply.

Plausibility Standard

The wholesaler’s complaint had to be dismissed with prejudice because it failed to meet the plausibility standard of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007-1 Trade Cases ¶75,709), and its progeny, the court held. The ultimate goal of the alleged conspiracy—to eliminate two of the four largest magazine wholesalers—was not plausible.

Publishers and national distributors had an economic self-interest in having more wholesalers—not fewer. More wholesalers yielded greater competition, which was good for suppliers. Moreover, the defendants had different reactions to the wholesaler’s “take it or leave it” surcharge, which undermined the wholesaler’s theory of conscious parallel conduct.

Parallel Conduct

The defendants’ decision to stop doing business with the wholesaler—the key parallel conduct allegation—did not create an inference of collusion. The defendants responded to the wholesaler’s unilateral demand, a negative stimulus, by pursuing similar but predictable policies to protect their business interests.

It was plausible that each of the publisher defendants unilaterally stopped shipping magazines to the wholesaler rather than pay the surcharge, the court explained.